Lawmakers pass $145 billion state budget

Tuesday

Sep 16, 2008 at 7:04 AMSep 16, 2008 at 7:05 AM

California lawmakers early Tuesday attempted to end the longest
budget impasse in state history, approving a roughly $145 billion
spending plan that relies on accelerated income tax payments rather
than borrowing or new taxes.

Lawmakers acknowledged the proposal
would get the state through its current fiscal year by closing a $15.2
billion deficit but would not solve California's persistent fiscal
problems.

"Let's be clear: All we've done is roll the problem
over to the next Legislature," said Senate President Pro Tem Don
Perata, a Democrat who is term-limited out of office this year.

Despite
the apparent end to this summer's grueling budget battle, it was not
immediately clear whether Gov. Arnold Schwarzenegger would sign the
bill sent to his desk. He had told lawmakers he would not support the
compromise proposal unless it contained a more robust rainy day fund.

The
final action in the Assembly, on a 61-1 vote, came shortly after 2 a.m.
on the 78th day of the fiscal year, the latest date the Legislature had
ever passed a spending plan. The Senate approved the package of budget
bills 28-12 earlier in the morning.

Lawmakers said they were
ready to end a deadlock that had paralyzed the Capitol for months, even
if the final deal satisfied almost no one. The budget deadlock had
delayed billions of dollars in payments to certain school programs,
medical clinics and vendors, while stalling negotiations over broader
policy issues such as revamping the state's water system.

"It has been a very difficult process," said Assemblyman Roger Niello, a Republican. "We have to come to closure."

The
budget proposal includes $7.1 billion in spending cuts and fills the
remaining gap by moving up tax collection deadlines and closing some
tax loopholes. Those maneuvers will generate $9.3 billion, leaving a
small reserve for unanticipated expenses.

A portion of the
revenue depends on increasing state income tax withholdings by 10
percent for working Californians, a move that would raise $1.6 billion.
It also would require those who pay estimated taxes — including
corporations and wealthier Californians — to pay 30 percent of their
taxes in each of the first two quarters of the fiscal year instead of
25 percent. That move would generate $2.3 billion.

At some point,
the accelerated income tax and quarterly payments would have to be
repaid to taxpayers, potentially through refunds. The higher
withholdings will mean less take-home pay for many workers, tax experts
said.

Another $1.9 billion would be added through a two-year
suspension of tax deductions that businesses can take for losses, known
as net operating losses, and limiting other tax credits.

Some
provisions of the plan will require voter approval, likely through a
special election. Those include the changes to the state's rainy day
formula and a $10 billion plan to borrow against future lottery revenue.

Should voters reject the lottery proposal, it would leave a $5 billion hole in each of the next two fiscal years.

Assemblyman
Fabian Nunez, the former speaker, said no one was satisfied with the
final budget proposal plan. He said lawmakers' options were limited, in
part by the souring economy and the two-thirds majority vote needed to
pass a budget.

"At this point, I think they did the best they
could," said Nunez, a Democrat. "The only complaint I had is I wish we
would have done this the first week of July."

The cuts include
many of those the governor proposed in his May budget revision,
although Democrats rejected what they considered the worst of those
reductions. They did not want to reduce foster care funding or kick
children off welfare if their parents don't find work within five years.

Under
the latest plan, the state would restore nearly all the 10 percent cuts
to doctors, dentists and nurses providing care under Medi-Cal, the
state's health insurance program for the poor. Those rate cuts, which
had been adopted in February, will be restored starting in March 2009.

The
compromise also closes the infamous "yacht tax" loophole. That allowed
people to avoid paying state sales tax on boats, RVs, airplanes and
other large luxury items if they took possession of them out of state
and kept them there for more than 90 days.

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